The SEC sues the State of New Jersey for misleading bond investors by not revealing the true state of its pension funds or the fact that the State did not follow through on plans to fund the pension obligations. Interestingly no one person was charged in the civil case, as usual no one is responsible just the State, a legal entity with no accountability. Forget the fact that many past State administrations of both parties have played games with the pension funds, the retiree medical liability and the benefits for state workers in total. No one person, no one politician is responsible for anything.
How do I know this? Since 1993, I served on three commissions for three different governors of New Jersey with the purpose of looking at the employee benefit programs for State workers. The last was in 2005. Each of those groups concluded in essence that the benefits were overly generous, inefficiently designed, way too expensive and that there were massive liabilities growing for not only pensions, but also retiree medical benefits. In all those years, nothing of substance was done to correct the problems (actually the benefits were further enhanced) which not only contribute to the State’s budget problems, but to the high tax rates paid by New Jersey citizens, most of whom have benefit programs valued at a fraction of that for State workers, if they have benefit programs at all.
The current governor has attempted to correct things, but the steps are quite insignificant. For example, for the first time many State and local government workers will pay a portion of the cost of their health benefits, 1.5% of pay to be exact. For a worker earning $50,000 a year that is $ 62.50 a month. For comparison, if you took a job with one of the State’s largest private employers, you would pay $76.00 for single coverage and $330 per month for family coverage, which is equal to about 25% of the total cost. These amounts are typical in the private sector. New Jersey has a long way to go in accomplishing much of anything to manage its employee benefit costs.
The fundamental problem with the pension funding is not the State’s failure to meet its funding obligation; it is that the pension benefits are so generous that they are unaffordable. In fact, State workers contribute a significant amount to their own pensions, that amount would in many cases be sufficient to totally fund an average pension in the private sector and in all cases would fund more than 50% of the typical private sector defined benefit pension.
So how did New Jersey get into this situation? The same way General Motors did, through overly powerful unions and irresponsible management (politicians in the case of the State). Unions in New Jersey especially the teachers union put pressure on politicians to provide more and more benefits, often citing (inaccurately) their underpaid members. Politicians seeking to keep their influential position cave to the demands without regard to the long-term costs or consequences. But hey, nobody is responsible. Quoted in the Wall Street Journal, a spokesman for the New Jersey Education Association said the SEC charges “pull the curtain away and expose the state’s malfeasance over the past 16 years.” I would say there is sufficient malfeasance to include the unions. I recall during public hearings when the benefit programs were being reviewed the unions bused in workers to protest even a close look at the design and cost of the benefits. My favorite testimony was that of a mother of seven who worked for the State from January through May each year. After May she went on unemployment for the rest of the year, but because of a change in the benefits approved by the legislature, she kept her free health benefits for the entire year. That is not an employee benefit program that is welfare. However, as we know, nobody is responsible. In the meantime, New Jersey taxpayers (and, by the way, taxpayers in other states as well) suffer the consequences of the GM mentality among public unions and politicians.
* * * * * * * * * * * * * *
P.S. If anyone was serious about providing government workers with affordable, competitive benefits, it is very easy to make such a determination. A long-established process used in the private sector determines the actuarial value of each benefit program, groups of programs and the entire benefits package and then compares that with other organizations. Therefore, if a state wanted to provide a benefit package equal in value to 100% of the benefits offered by the state’s twenty largest private employers, it could easily do. Go ahead I dare you!
Oh, I forgot, no one is responsible.